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With tax deduction limits coming for 2013, medically related home upgrades are a smart project this year.

For the 2012 tax year, you can take a tax deduction on medically necessary home improvements — like installing a wheelchair ramp and other projects that make life easier for an ill or injured family member — if you:

Itemize deductions

Spend more than 7.5% of your adjusted gross income on the upgrades (10% of AGI if you’re subject to alternative minimum tax).

Starting in 2013, if you’re under age 65, you can’t take the tax deduction on medical expenses until you spend 10% of your AGI. But if you’re 65 or older in 2013, you can stick with the 7.5% AGI tax deduction threshold through the end of 2016.

The rules for tax deductions on medical home improvements are tricky:

1. Start with what it costs to modify your home.2. Subtract the value the upgrades add to your home.3. What’s leftover is your tax deduction — if you meet your AGI threshold.

How it works

Say you’re 45 years old and spend $20,000 to put a bathroom on the first floor of your home because your husband can’t climb stairs anymore. Your AGI is $100,000. A REALTOR® says the bathroom adds $10,000 to the value of your house.

1. Start with the cost of the improvements: $20,0002. Subtract your added home value: $10,0003. Of that $10,000 difference, you can only take a deduction for expenses that exceed 7.5% of your AGI or $7,500.

So if you itemize, you can take a $2,500 deduction for the 2012 tax year. Wait until 2013 and you get no deduction because your threshold rises to 10%. If you’re over age 65, though, you can claim a $2,500 deduction.

Tip: Doing all your improvements in a single year will help you meet the AGI threshold.

Some of the improvements that you can claim a tax deduction for, according to IRS Publication 502, “Medical and Dental Expenses”:

Entrance ramps for your home

Grading the yard before building a ramp, or to make it easier to get in your home

Widening exterior or interior doorways

Widening or removing hallways

Installing railings, support bars, or other bathroom improvements

Lowering or modifying kitchen cabinets and equipment

Moving or modifying electrical outlets and fixtures

Installing porch lifts and other forms of lifts (but elevators generally add value to the house)

Modifying fire alarms, smoke detectors, and other warning systems

Modifying stairways

Adding handrails or grab bars anywhere (whether or not in bathrooms)

Changing door knobs

Upkeep of medically necessary upgrades, like elevators, and operating costs

Lead-based paint removal if your child has lead poisoning

Renovating an existing bathroom to make it handicap accessible or adding a new accessible bath

has been writing about real estate for more than two decades. She lives in a suburban Baltimore Midcentury modest home on a 3-acre lot shared with possums, raccoons, foxes, a herd of deer, and her blue-tick hound. Follow Dona on Google+.

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